Swatch Group is a conglomerate that is actively involved in the design, manufacture and sale of finished watches and watch components. The watch company is popular for running a number of entities that bring together a lot of revenue to the parent company. One of the possible niches that Swatch can explore is the smartwatch industry. This is an industry that some smartphone companies like Apple have exploited successfully and contain a significant market share.
The purpose of this report is to conduct a critical analysis of the major environmental trends in order to deduce the opportunities and threats that are likely to be faced by Swatch in moving into the market. This will culminate in the evaluation of a series of scenarios on how Swatch can enter the smartwatch industry and attain an optimal result.
Environmental Trends
The smartwatch industry is based on the concept of smartphones. This is an industry that Swatch has a very small and weak presence within. The smartwatch is a wearable which is a term that has come to denote watches and other devices fixed onto the body which act like computers and have features of computers.
The global smartwatch industry involved some 40 companies which launched smartwatches and sold some 3.1 million unit for a revenue of about $700 million in 2013. This was complemented by some 20,000 app makers that target the production of apps that can be used in smartwatches and similar wearables. This is done on the basis of creating a software system that will enable as many wearables as possible to have apps and function like mobile phones and give wearers various forms of multimedia outlets to carry out their actions and enjoy their information in a unique way and manner.
Motivations
In order to understand the market and know how well the manufacturers of smartwatches compete, there is the need to identify the main pointers and views that are taken by consumers who use these smartwatches. Ernst & Young identified that the four main reasons why consumers acquire smartwatches are Enhancing communication, Extension of phone usage and hence necessary at all times, Convenience and organisation & Response to adverts.
A person might buy a smartwatch just as a means of enhancing communication and being able to communicate and stay in touch with some important people that they must contact. This way, they get constant and continuous access to certain people they have to communicate with.
Secondly, a person might want a smartwatch so that they can get all the benefits they get from a smartphone. This includes the Internet and other forms of multimedia at a time where they are normally going to be denied such services due to the need to exercise or going to certain places.
Thirdly, a smartwatch organises the activities of a person. You can have better access to and movement of information when you have a smartwatch. This is because you can get information at times where you will not normally have your phone.
Finally, people purchase smartwatches as a response to adverts. Many adverts are shown each day and some of them present very lovely and enjoyable views of new devices like smartwatches. This induces certain people to go to shops to purchase these watches and use them for their activities.
Competitors
In entering the smartwatch market, Swatch will be up against some competitors. Apple is the leading manufacturer of smartwatches and wearables. In 2015, Apple produced 13.9 million smartwatches to secure 58.3% of the market share for smartwatches . However, the market is expected to double each year until 2019, where Apple’s share of the smartwatch industry is expected to fall to under 50%. This makes Apple a leading player and a pioneer of the smartwatch industry.
However, the market can be understood by classifying manufacturers into two camps (1) established corporations and (2) specialised/focused companies. The former is made up of popular brands in the consumer electronic and computer industry whilst the latter include manufacturers who only produce smartwatches with little emphasis on other products. The following companies are part of the classes:
Established corporations
Samsung – 23%
Lenovo/Motorola – 10%
LG – 7%
Sony – 6%
ASUS – 2%
Specialised and focused
Pebble – 7%
Fitbit – 6%
Jawbone – 1%
Misfit – 1%
Segmentation
For Swatch to achieve results, it has to be mindful of the different segments of the industry. The market is made up of three main classifications and this includes the following classes:
Age: This is a classification of consumers on the basis of the age category they belong to. About half of the consumers are millennials aged between 18 and 34. Everybody else is evenly spread throughout the different consumer classes
Income: For the purpose of discussing smartwatches, most classifications put users in either the low cost user category or the high class user category. Low cost users are into brands like Pebble and Samsung which are under $300. On the other hand, Apple provides smartwatches from $350 to $17,000
Other Device Usage: This refers to the complementarity of the smartwatch with other watches and/or electronic devices. This classification include users of smartwatches as primary (only product they use), secondary ( as a second class) or as a tertiary (part of three or more products)
Key Success Factors
There are four key pointers that are essential and vital for Swatch in achieving optimal results in the smartwatch industry. These are pointers that must be taken into account for Swatch in creating a given brand or product line:
Complementarity or Independence: There is a question of whether a manufacturer is producing a smartwatch that is to be sold with another device or something that is sold independently. A complementary device helps to promote and enhance other products in a separate line. An independent product will promote focus and there will be an emphasis on a product that consumers will love and continue to use.
Innovation: This is important in the smartwatch industry because every consumer wants to do things on his smartwatch that he cannot do in terms of normal uses. This means that finding new activities and integrating them into a smartwatch to make it function better is the only key to capturing and holding a significant market share.
Versatility: This is the ability to connect to different platforms and systems for a smartwatch to function. A smartwatch should be able to work with different devices and promote organisation of the user and enhance connectivity in different ways and forms. Therefore, developing a process and system that will enable a company’s smartwatch to become highly demanded in a given market and enable the product to be respected throughout the market.
Pricing Strategy: Segmentation is an important part of succeeding in the smartwatch industry because there are different forms of consumers who are willing to purchase products. There are many different consumers with varying earning capacities and competencies. There must be affordable brands for the different classes of people through prices. There must be prices that are affordable for the poor and growing middle class. And there must be luxury and ostentatious brands of smartwatches for a given company.
Swatch Group and Market Entry
There are several opportunities for Swatch to utilise in order to create smartwatches and present to the market including the opportunity to utilise the many decades in creating watches and also build on the brand name they have created over the years.
Swatch has a lot of money and the goodwill to raise a lot more money. Through this, they have the opportunity to create a new subsidiary for their smartwatches to be sold. The company also has a strong customer base which they can grow by presenting a new market niche they can develop significantly to target different people on the markets.
The threats to this opportunity are the fact that there is the presence of strong and recognisable brands in the industry. There is the risk that the market could mature and smartwatches will become obsolete.
There is also the threat of Swatch failing to attract consumers from millennials who are the main market for smartwatches. This is because their products do not normally complement computerised products like smartwatches do.
Alternative Entry Scenarios
There are three different options that can be utilised to produce and sell smart watches for the Swatch Group in order to make the best of the opportunities and ameliorate the threats faced by the group. The options are as follows:
Option 1: Specialised subsidiary with research and development function that produces only smartwatches that are of a high quality and premium classification
Option 2: Purchase a smartphone subsidiary and provide low quality mass marketed smartwatches and seek market share in the long-term &
Option 3: A mixed system that will focus on creating expensive smartwatches for the rich and current customers of Swatch and a line for affordable swatches for millennials.
Evaluation of Scenarios
Each of the scenarios promises different sets of benefits of the company as well as some major complications and difficulties that could make the company go through crises and challenges.
Option 1: Premium Smartwatches
This will mean extending the Swatch brand and selling these produces on the basis of what consumers want and how they desire quality and expensive products. To this end, Swatch will compete directly with expensive Apple brands and products. This will include the branding and sale of the Swatch smartwatches which are modelled on the normal products and services of the company. This will also help to create a system whereby the company will have to create some kind of complementarity that is revolutionary in order to present brands from static watches to a smartphone industry and section.
The benefit for this is that Swatch will focus on a niche that is good and familiar to the group. This will help to provide the basis for a launch into the markets and the differentiation of the product from other competitors.
The downside of this is that Swatch will be too focused and too specialised and this will increase the risks faced on the markets.
Swatch has the competency to deal with this scenario by way of the fact that they have the ability to produce premium watches. This is because they have produced high quality watches in the past and have the market for such watches and financial capital to back it.
Option 2: Mass Marketing for Low Cost Smartwatches
There will be the presentation of cheap and basic smartwatches for consumers. These products will be affordable and they will be of basic components and products. The focus of this should be based on the best and the most versatile materials that will work with as many smartphones as possible. However, it will require investment and a branch into a different sector that might be risky. It will be an expensive venture and might not be too successful. There is also a large market to compete with but it will be expensive and too demanding.
Swatch’s competency to deal with this is limited in several ways because the company is not known for mass production and mass marketing. Although they might have the resources to deal with this, they do not have the ability and will to compete with the many emerging low cost smart watch manufacturers.
Option 3: A Blend of Premium and Low Cost Smartwatches
This will be the acquisition of a low cost smartwatch entity and the production of premium smartwatches for consumers based on the swatch model. This is going to be expensive, high-risk and can be extremely demanding. This new model is good for market leverage but will demand a lot of investment and open up the risks that could be problematic.
Swatch’s competency to deal with this approach is problematic because it will have to do too many things at the same time. This will be the combination of different functions and the limitation of capital utilisation and movement in different ways and forms. This will lead to many problems and challenges that will prevent them from achieving a large market share and growing.
Final Recommendation - Strategic Choice
The strategic choice for Swatch is Option 1. This is to produce premium smartwatches that will be branded and sold at extremely high prices across the channel of Swatch. This will ensure that the company will be able to focus on its competencies and produce high quality and ostentatious smartwatches that will be sold to the existing clients and create a base clients on the existing clientele of Swatch.
Works Cited
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